Interest rate cuts have now become the go-to strategy for central banks around the world and especially in the Asia-Pacific. But whether such a strategy will solve the problems that need to be addressed is open to question. It might also have some unpleasant side effects. Since May, there have been interest rate cuts from Australia, India, Indonesia, Malaysia, the Philippines and South Korea. Then this week, there were three more: a surprise cut by Thailand for the first time in four years; an unexpectedly hefty 50 basis point cut by New Zealand; and the fourth cut of the year by India, by an unusual 35 basis points.

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Part of the reason for this aggressive rate-cutting was to undo the rate hikes that some regional central banks had imposed when the United States Federal Reserve was tightening monetary policies in 2017 and last year. But then the tide turned early this year when the Fed signalled that, in view of rising trade tensions and below-target inflation, it might reverse course to a more accommodative policy – a view echoed by the European Central Bank, which is trying to combat both weak inflation and an economic slowdown. So Asian central banks started cutting rates in anticipation of a cut by the Fed, which it duly delivered on July 31. Soon after, US President Donald Trump threatened to impose tariffs on roughly US$300 billion (S$415 billion) of imports from China, which would effectively subject all US imports from China to tariffs.